This research focuses on the black markets for foreign currency and goods in the former Soviet Union and Eastern Europe. Parallel markets in goods and currency are influenced by developments in the official and unofficial markets for foreign- currency trade and by economic-reform initiatives. The objective of the research is to trace, both theoretically and empirically, the implications of anticipated and unanticipated policy reforms for hoarding of consumption goods, inflation, the black-market exchange rate, and black-market trade volumes in the former Soviet Union and Eastern Europe. The methodological approach is drawn from the theory of exchange-rate determination, with the portfolio theory of asset demands and exchange-rate determination agumented to show that when there are shortages in goods markets and individuals tend to hoard goods as a form of investment, with black-market exchange rates biased predictors of the post-reform equilibrium exchange rates. Announcements of reform can lead short-run exchange rates to overshoot or undershoot (depending on the announcement) long-run equilibrium levels. The empirical work will examine black-market exchange rates (buy and sell rates) between the rouble and the dollar, as drawn from bi-weekly sampling of Moscow black-market currency dealers. The determinants of black-market exchange- rate movements will be identified empirically, as will be the determinants of the spread between the bid and ask prices in this market. If appropriate data is available, black-market prices for goods also will be studied. Exchange rate and price data for the Baltic nations also may be examined. This research will provide insights into the distortions caused when governments use black-market rates to choose levels of official exchange rates. The project furthers VPW program objectives to provide opportunities for women to advance their careers in science or engineering through research, and to encourage other women to pursue careers in these areas through the investigator's enhanced visibility as a role model on the host campus. The proposed activities which contribute to the second objective include: teaching a course in International Finance; presenting independent research on "Exchange-Rate Regimes in Transition Economies" in departmental seminars in International Economics and Comparative Economic Studies; regularly participating in the International Economics seminar program; and working to promote the achievement of women in economics by active involvement with female graduate students through the established support group "Women in Economics."
